Going, Going, Gone…: The Principle of Abatement
Last week, Jason Allan blogged on the principle of ademption. I thought I’d take the opportunity blog on the similar, but distinct, principle of abatement.
Whereas ademption refers property devised in a Will ceasing to exist at the date of death, abatement refers to the reduction of legacies that occurs when, after payment of debts, there are insufficient assets in the Deceased’s estate to satisfy all of the gifts provided for in the Will in full. As a result, absent a contrary intention in the Will, the beneficiaries will receive their bequests at a reduced amount, if at all.
The type of legacy provided for in the Will determines the order in which the gifts will abate. The order of abatement is as follows:
- First, residuary personalty;
- Second, residuary real property;
- Third, general legacies, which include pecuniary bequests from the residue;
- Fourth, demonstrative legacies, which are bequests from the proceeds of a specific asset or fund, such as a bank account, which does not form part of the residue;
- Fifth, specific bequests of personalty; and
- Sixth, specific devises of real property.
The assets at each level will abate rateably until they have been exhausted, at which point the assets at the next level will start to abate.
Keep this in mind when planning your clients’ estates. I recently had a case where the assets in the estate were a home and some bank accounts. Because of debts, the cash assets ended up being exhausted. At the end of the day, one beneficiary walked off with a $250,000.00 home. The others got nothing. One wonders if this is what the testator had intended.
Have a great day!